Quick Education: Finance Speak — The Terminology

Our commitment to you is to speak in plain language and explain all of your investments in a way you can understand.  The definitions below serve as a starting point for personal discussions you will have with your advisor.

401(k) Plan
A qualified retirement plan established by employers which allows eligible employees to make salary-deferred (salary-reduction) contributions on a pre- or post-tax basis. Employers may make matching or partially-matching contributions to the plan on behalf of eligible employees; they may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis. Source: Independent Financial Web Portal

529 Plan
A 529 plan is a tax advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary. Source:  Investopedia

Resources owned by a company, fund, or individual; i.e. cash, investments, money due, materials, inventories, etc. Source: Plan & Act

Asset Class
A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments). Source: Investopedia

Asset Allocation
An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon. Source: Investopedia

Asset Location
Asset location is simply the way in which assets are divided between taxable and tax-advantaged accounts to maximize a portfolio’s after-tax returns. By purchasing tax-efficient investments in taxable accounts and tax-inefficient investments in tax-advantaged accounts, investors can potentially retain a greater portion of their after-tax returns. And those incremental differences in return can have a powerful compounding effect over the long run. Source:  Vanguard Group, Inc.

Bear Market
A market in which prices are falling, or expected to do so. Source: Plan & Act

A standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose.Source: Investopedia

A debt security issued by corporations, governments, or their agencies, in return for cash from lenders and investors. A bond holder is a creditor, not a shareholder. Source: Plan & Act

Bull Market
A market in which prices are rising, or expected to do so. Source: Plan & Act

Chartered Financial Analyst (CFA)
A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management and security analysis.
Source: Investopedia

Certified Financial Planner (CFP®)
A Financial Planner is a person who sets up financial plans for individuals. A Certified Financial Planner is a person who has passed a series of examinations, achieved at least three years industry experience, and met all other statutory licensing requirements. The CFP mark represents the highest designation attainable in the field of Financial Planning.
Source: Plan & Act

A tradable item that can generally be further processed and sold; i.e. metals, wheat, coal, etc. Source: Plan & Act

Compound Interest
Interest that  is calculated on both the principal and interest previously earned. Source: Plan & Act

Cost Basis
The original value of an asset for tax purposes (usually the purchase price), adjusted for stock splits, dividends and return of capital distributions. This value is used to determine the capital gain, which is equal to the difference between the asset’s cost basis and the current market value. Source: Investopedia

Coverdell Education Savings Account (ESA)
A tax-deferred account created by the U.S. government to assist families in funding higher-education expenses. Source: Independent Financial Web Portal

A financial institution that holds customers’ securities for safekeeping so as to minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form.
Source: Investopedia

A withdrawal of assets from a retirement account that are then paid to the account owner or beneficiary. The account owner (or beneficiary) may be required to pay income tax on distributions received during the year. Early-distribution penalties may also apply if the distribution occurs while the account owner is under the age of 59½.
Source: Independent Financial Web Portal

A risk management technique that mixes a wide variety of investments within a portfolio.
Source: Investopedia

The amount of a corporation’s after-tax earnings that it pays to its shareholders.
Source: Plan & Act

Dow Jones Index
A leading index of U.S. stock market prices.
Source: Plan & Act

Early Withdrawal
The removal of funds from a fixed-term investment before its maturity date, or the removal of funds from a tax-deferred investment account or retirement savings account before a prescribed time, such as the account owner’s attainment of a minimum age requirement. An early withdrawal fee is usually imposed, which acts as a deterrent to frequent withdrawals before the end of the early withdrawal period. Source: Independent Financial Web Portal

Employee Contribution Plan
A company-sponsored retirement plan which allows employees to make salary-deferred deposits (contributions) into an account; some companies match those payments.
Source: Independent Financial Web Portal

A stock or any other security representing an ownership interest.
Source: Investopedia

The overall planning of a person’s wealth, including the preparation of a will and the planning of taxes after the individual’s death. Source: Independent Financial Web Portal

Exchange Traded Fund (ETF)
A security that tracks an index, a commodity or a basket of assets like an index mutual fund, but trades like a stock on an exchange.  ETFs experience price changes throughout the day as they are bought and sold. Source: Investopedia

Fiduciary Relationship
A financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest. Source: Plan & Act

Financial Analyst
A person trained to advise on the risk and return characteristics of investments and in the management of investment portfolios. Source: Plan & Act

Financial Planners
Financial Planners look at the big picture and help you figure out what your long-term and short term goals are. They often work with you to develop plans for retirement, college funding, wealth transfer, tax planning and insurance. Source from CSRIA Manual

Functional Asset Allocation
The premise behind this concept is that each asset category serves an important function or purpose in people’s lives, and that understanding these unique functions allows the use of assets to be optimized. Real estate, in the form of the personal residence, is a prime example. It usually represents the largest and most profitable investment a family has, provides the best protection against inflation, and adds value beyond a financial calculation because of the personal enjoyment derived from its use.
Source: Plan & Act

A person who inherits some or all of the estate of a recently deceased person. The legal successor is usually related to the deceased by a direct bloodline or has been designated in a will or by a legal authority. Source: Independent Financial Web Portal

Income Bond
A type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment.
Source: Investopedia

A numerical measure of price movement in financial markets.
Source: Plan & Act

The condition of dying without a legal will, upon which the government assumes responsibility and determines the method by which assets are to be distributed.
Source: Independent Financial Web Portal

An asset acquired for the purpose of producing income and/or capital gains.
Source: Plan & Act

Investment Objective
A client information form used by Bigleow Investment Advisors that aids in determining the optimal asset class allocation for your goals, risk tolerance and time horizon.  The investment objective details the targeted asset classes for your portfolio and the permissible allocation percentage to each asset class.
Source: Bigelow Investment Advisors

A retirement investing tool that can be either an “Individual Retirement Account” or an “Individual Retirement Annuity”. There are several different types: Traditional IRAs, Roth IRAs, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs, and Simplified Employee Pension (SEP) Source: Independent Financial Web Portal

Traditional and Roth IRAs are established by individual taxpayers; Roth IRA contributions are not tax-deductible. SEPs and SIMPLEs are retirement plans established by employers, with individual participant’s contributions being made to their own SEP- and SIMPLE IRAs.
Source: Independent Financial Web Portal

Keogh Plan
A defined-benefit plan or defined-contribution plan established by a self-employed individual for him or herself and his or her employees.
Source: Independent Financial Web Portal

The ability of an investment to be easily converted into cash with little- to no loss of capital and a minimum of delay.
Source: Plan & Act

Lump-Sum Distribution
A one-time payment for the entire amount due (or full distribution of funds made during the same tax year), rather than breaking payments into smaller installments; some lump-sum distributions receive special tax treatment.
Source: Independent Financial Web Portal

A public place where buyers and sellers conduct transactions, either directly or via intermediaries.
Source: Plan & Act

Matching Contributions
A type of contribution that an employer chooses to make to his or her employee’s employer-sponsored retirement plan, based on elective deferral contributions made by the employee.
Source: Independent Financial Web Portal

Money Managers
Money Managers manage your portfolio and do your investing for you. They often work on a discretionary basis authorizing and trading on your behalf.
Source from CSRIA Manual

Mutual Fund
An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

National Association of Securities Dealers Automated Quotations is the New York-based U.S. stock exchange that specializes in technology companies.
Source: Plan & Act

National Association of Personal Financial Advisors, is the nation’s leading organization dedicated to the advancement of Fee-Only comprehensive financial planning. Consumers and the financial trade media look to NAPFA for access to financial advisors who meet the highest standards for professional competency, comprehensive financial planning and Fee-Only compensation.
Source: Plan & Act

Net Worth
An aggregation of the value of all assets, including cash, less total liabilities.
Source: Plan & Act

An agreement that conveys the right, but not the obligation, to the holder to buy or sell a particular security at a stipulated price within a stated period of time.
Source: Plan & Act

Any contribution to a tax-deductible retirement savings plan which exceeds the maximum allowed contribution for a given period of time as determined by the retirement plan’s registrar; they are usually subject to some form of monetary penalty intended to reduce their occurrences.
Source: Independent Financial Web Portal

Pension Fund
A fund established by an employer to facilitate and organize the investment of employees’ retirement funds contributed by both the employer and employees. The fund is a common asset pool meant to generate stable growth over the long term, providing pensions for employees when they reach the end of their working years and begin retirement.
Source: Independent Financial Web Portal

Pension Plan
A retirement plan (often tax exempt) into which an employer makes contributions for his or her employees. Many pension plans are being replaced by the 401(k).
Source: Independent Financial Web Portal

An investor’s collection of investment holdings, usually with reference to its composition.
Source: Plan & Act

A legal document, required by the Securities Act of 1933, setting forth the complete history and current status of a security or fund; it must be made available whenever an offer to sell is made to the public. Source: Plan & Act

The amount of money received annually from an investment, usually expressed as a percentage. Source: Plan & Act

Required Minimum Distribution (RMD)
The amount that Traditional, SEP and SIMPLE IRA owners and qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age 70.5.
Source: Investopedia

Revocable Trust
A trust in which provisions can be altered or canceled by the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries. This is the opposite of an Irrevocable Trust, which cannot be modified or terminated without the permission of the beneficiary.
Source: Independent Financial Web Portal

The measurable likelihood of loss or less-than-expected returns.
Source: Plan & Act

Risk Tolerance
The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important component in investing. An individual should have a realistic understanding of his or her ability and willingness to stomach large swings in the value of his or her investments. Investors who take on too much risk may panic and sell at the wrong time.  Source: Investopedia

The process of transferring the holdings of one retirement plan into another without suffering tax consequences. The process of reinvesting funds from a mature security into a new issue of the same or similar security.
Source: Independent Financial Web Portal

Roth IRA
An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free.
Source: Investopedia

(SEC) The Securities and Exchange Commission
The U.S. regulatory authority for the securities industry.
Source: Plan & Act

The paper right to a tradable asset.
Source: Plan & Act

Simple Interest
Interest that is paid on the initial investment alone.
Source: Plan & Act

An instrument that signifies an ownership position (equity) in a corporation.
Source: Plan & Act

Any type of investment, account or plan that is either exempt from taxation, tax-deferred or offers other types of tax benefits. Examples of Tax-Advantaged investments are municipal bonds, partnerships, UITs and annuities. Tax-advantaged plans include IRAs and qualified plans.
Source: Investopedia

Tax Shelter
Tax shelters are legal methods for reducing taxable income resulting in a reduction of payments of State and Federal taxes and an increase of individuals’ wealth. A major example for a tax shelter is a retirement plan such as 401k. Taxes on money put aside in such plans are not taxed until retirement. The advantage of contributing to such plans is that money that would have been taken out as taxes is compounded in the plans until the funds are withdrawn.
Source: Plan & Act

The current general direction of movement security or commodity prices.

The extent of fluctuation in share price, interest rates, etc. The higher the volatility, the less certain an investor is of return; therefore, volatility is one measure of risk.

Wealth Managers
Wealth managers handle both your investing and your planning. They provide highly personalized planning,  investment and portfolio management, and they coordinate with other professional advisors like attorneys, accountants etc. to meet your goals.
Source: CSRIA Manual